Capital raising
IPOs allow companies to raise funds for expansion, debt repayment, or R&D by selling shares to public investors.
The IPO process
1
Hiring underwriters
Investment banks assess the company’s value, structure the offering, and manage regulatory compliance.
2
Documentation
Draft a red herring prospectus (RHP) detailing financials, risks, and business operations for SEC review.
3
SEC filing & approval
Submit form S-1 to the SEC, which verifies accuracy and mandates revisions if needed.
4
Roadshows & pricing
Underwriters market the IPO to institutional investors to gauge demand and set the final offering price.
5
Going public
Shares debut on a stock exchange (e.g., NYSE or NASDAQ), with proceeds funding operations or paying debts.
Impact on financial statements
Balance sheet: Equity increases via share sales; liabilities may decrease if debt is repaid.
Income statement: Higher visibility and capital may boost future revenue and profitability.
Cash flow: Inflow from share issuance improves liquidity for short-term obligations.
Real-world examples
Case study: Tech startup’s IPO journey
A SaaS company preparing for an IPO hired Goldman Sachs and Morgan Stanley as underwriters. After SEC approval of its S-1 filing, roadshows generated strong institutional demand, leading to a $50/share pricing. On its NASDAQ debut, shares surged 20%, raising $500 million for global expansion and R&D.
Frequently asked questions about IPO?
IPO stands for Initial Public Offering. It is the process by which a private company offers its shares to the public for the first time, allowing anyone to buy ownership in the company through a stock exchange.
Buying an IPO can be both good and bad, depending on various factors like early entry, listing gains or overvaluation & uncertainty.
IPO stands for Initial Public Offering.
The "best" IPO can vary based on timing, sector, and market conditions. However, past performance does not guarantee future results, and investors should always conduct their due diligence.